Regulatory burden

Considerable variation in regulatory loads involving the combat against the grey economy

The prevention of the grey economy involves statutory obligations which incur a regulatory burden in the form of various costs to companies and public entities. According to a report prepared by the Finnish Competition and Consumer Authority (FCCA), a considerable portion of the costs consists of an administrative burden arising from statutory notification duties. Digital services have been successful in reducing this load to a considerable extent.

On 28 April 2016, the government issued a government resolution in Finnish (PDF 134 kB) on the national strategy to combat the grey economy and economic crime for 2016–2020. An operational programme in Finnish (PDF 304 kB) including 20 projects was drawn up for the purposes of implementing the strategy. The FCCA is responsible for one of these projects, concerning the regulatory load arising from the grey economy and economic crime and the monitoring thereof. The FCCA has now mapped the costs arising from the prevention of the grey economy for the first time.

The prevention of the grey economy does not always give rise to a regulatory load

The regulatory load born by companies and public entities due to the prevention of the grey economy varies in terms of its magnitude and also over time. Usually, the costs are highest when the legislation is being adopted, after which they gradually come down.

Not all statutory obligations related to the prevention of the grey economy result in a load, however. The obligation to offer receipts, for example, does not burden companies with a administrative or other regulatory load worth mentioning, given that a previously prevalent market practice has merely been prescribed in law. The same assessment applies to the principle of ‘pay to account’, i.e. wages being paid to the bank account indicated by an employee, unless there are imperative reasons for cash payment. Nor does information retrieval from the tax debt register cause a considerable regulatory load, given that the system is connected to valid legislation and easy to use.

Some of the means serving to combat the grey economy have actually proved to be cost saving. Assessments expect the Income Data System Act to reduce the working hours of payroll administration in the private sector by approximately 800–850 person/year which, in terms of euros, translates into roughly EUR 40–45 million according to the cost calculator developed by the Ministry of Economic Affairs and Employment.  The cost savings of the government’s payroll administration are estimated to total EUR 250,000 a year and, in the municipal sector, EUR 3–6 million.  On the other hand, these savings do not come free. Government Bill HE 134/2017 estimated that the overall costs of the establishment project concerning the Tax Administration’s income register would amount to EUR 48,346,000 during 2014–2020.

Digital services ease the regulatory load

In the construction industry, the prevention of the grey economy has been fairly expensive.For example, the regulatory load of the reverse charge mechanism was estimated to be EUR 26 million a couple of years after the legislation’s entry into force. The regulatory load arising from the reverse charge mechanism is expected to decrease in the future, however. In Sweden, the regulatory load on companies had, over time, reduced to half of the costs of the initial phase. 

The estimated number of notifications related to the notification procedure concerning construction site workers and construction contracts was 580,000 in 2017. The notifications were submitted primarily via digital services or on digital forms. Digital services have managed to reduce regulatory loads by a considerable degree in comparison to what they would be were the notifications delivered to the authorities as hard copies.

The easy availability of the information referred to in the Act on the Contractor’s Obligations and Liability when Work is Contracted Out through the Reliable Partner service provided by Suomen Tilaajavastuu has also contributed to the reasonability of the regulatory load in a material way. Approximately eight million contractor’s obligation reports were retrieved form the service in 2017.

The administration’s internal load must be taken seriously

The FCCA’s report also examines the administration’s internal load – i.e. the load on authorities – arising from the means to prevent the grey economy. This load is the result of changes in IT systems, for example, as well as registers and the related information services, consultation and training as well as the guidelines and monitoring required by the adoption of new systems. A substantial portion of the administration’s internal load is composed on non-recurring costs, but some of the costs remain permanent.

Rules on the exchange of information have reduced the administration’s internal load. They can uncover omissions which the resources of an individual authority would be inadequate to reveal. This means that the authority’s supervisory resources can be allocated more efficiently and economically than on the basis of the authority’s own information alone. Debt service obligation reports also lighten the administration’s internal load compared to a situation in which each authority would seek the information they need from other authorities independently. This is clearly indicated by the yearly number of debt service obligation reports which, in 2017 for example, was more than 270,000.

Further information: Kalle Määttä, Senior Adviser, tel. +358 50 369 8059

Summary of the report in Finnish (PDF 614 kB)